China, China, Everywhere; But Not A Drop Of QE To Drink

Tyler Durden's picture

With this evening's news that Japan and the USA are 'backing down' from a planned 'joint security drill' to recapture a remote 'uninhabited' island in Okinawa province (apparently amid concerns of backlash from Beijing); and chatter of the PBoC gauging demand for reverse repos (instead of flooding us with newly minted Yuan which everyone believes is just the remedy), it seems very clear who the world's super-power is (militarily and economically). Furthermore, as The Diplomat explains, multi-faceted challenges to the new leadership — possible economic stagnation, social unrest, elite disunity, and a revival of pro-democracy forces — will make it more distracted and less politically capable to maintain discipline on numerous actors now involved in China's foreign policy.  The effects of such accumulated internal woes, while not necessarily aggressive, are certain to be an erratic pattern of behavior that both worries and puzzles China's neighbors and the rest of the international community.

"Be careful what you wish for.  A weaker China could nevertheless
inflict serious damage to the world order."

On China's Political Transition (via Damien Ma's interview with Foreign Affairs Magazine):


Via Minxin Pei of The Diplomat: Sorry World, What Happens In Beijing, WON'T Stay In Beijing

One of the questions on the minds of most China watchers these days is how Beijing will behave externally when it faces a far more difficult internal environmentOf the well-recognized challenges China will encounter in the coming years are its deteriorating economic dynamism, a structure of decision-making with diffused power and uncertain authority, rising nationalism, growing demand for political reform, and widespread popular disenchantment with the status quo.


In totality, these internal difficulties will reduce the resources available to maintain and expand China's influence around the world, constrain the Chinese military's ability to accelerate its modernization, and make Chinese leaders more reluctant to assume greater international or regional responsibilities.  Most worryingly, erratic behavior driven by a mixture of lack of leadership experience and political security will most likely mark Beijing's foreign policy conduct in the coming years.


Given the high profile China has assumed in projecting its economic influence around the world, particularly in resource-rich developing countries, one might dismiss as fanciful the suggestion that looming economic hardships at home may severely limit Chinese capacity for establishing itself as an economic alternative to the West.  But a closer look at how China has been funding its investments in Africa, Central Asia, and Latin America would show that such investments are not only expensive, but also very risky.   The grants and concessionary loans China has made to various countries to gain their goodwill have totaled at least tens of billions of dollars (these are reported figures; nobody knows the real amount).  They were made when China enjoyed double-digit growth and had ample cash to throw around.


But as the Chinese economy decelerates and less money flows into Beijing's coffers, the Chinese government will obviously have less funds to sustain such economic and diplomatic offensives.  Politically, continuing a lavish foreign aid program when its own people are struggling will surely arouse fierce criticisms from the public.  Not too long ago, the Chinese Foreign Ministry was denounced bitterly when it was revealed that China donated safe school buses to Macedonia when its own schoolchildren have to ride in unsafe vehicles.


China's risky foray into developing countries will face another hurdle.  Most of the big-ticket projects China has supported in these countries are funded by loans from China's state-owned banks.  Based on previous experience, many of these projects are likely to fail.  As Chinese banks are themselves expected to struggle to deal with a wave of non-performing loans at home, the last thing they want to do is to keep funding these high-risk, low-return projects abroad.  So it is a foregone conclusion that a weaker China at home means a less influential China abroad.


Another obvious casualty is China's much-vaunted campaign to project its "soft power."  Internally called "dawaixuan" (big external propaganda), this campaign has led to a huge expansion of official Chinese media presence around the world.  Xinhua, for example, has launched its English-language television news service.  The nationalist tabloid, Global Times, has added an English edition.  The official China Daily has regularly placed high-priced full-page ads in The New York Times, The Wall Street Journal, and The Washington Post.  Judging by the worsening of Chinese image around the world, this campaign has been a flop.  When Beijing's propaganda chiefs get their new austerity budgets in a year or two, it is hard to imagine they will decide to throw good money after bad.


China's waning economic, cultural, and diplomatic influence caused by dwindling financial resources will not be the only victim of its internal difficulties.  The People's Liberation Army, which has enjoyed double-digit growth in its budget for nearly two decades, will probably have to fight harder for its share of a smaller pie.  The pace of Chinese military modernization could slow down.  To Chinese neighbors, this development will reduce their anxieties.  Washington, of course, might also breathe a sigh of relief.  However, such an outcome is by no means certain.  It is conceivable that the PLA may cite the American "pivot," and territorial disputes with Japan, the Philippines, and Vietnam, to push for more defense spending.  Should the PLA succeeds in making its case, it will have to pay a high price because the Chinese military will be competing with other equally powerful political interests, such as state-owned enterprises, the bureaucracy, and local governments, for dwindling budgetary outlays.


Some Western observers may welcome such mounting woes inside China since they will diminish Chinese influence and reduce the "China threat."  But be careful what you wish for.  A weaker China could nevertheless inflict serious damage to the world order.


One obvious casualty of China's internal weakness will be Beijing's reluctance to play a more constructive role in global and regional affairs.  Cynics might say that Chinese leaders, even when times were good, talked more than they actually delivered.  While some of such criticisms were true, a more objective assessment may show that Beijing has, on occasion, played a more positive role than it has received credit for, such as during the East Asian financial crisis in 1997-98 and in its push for regional free trade.  Even on the Korean Peninsula, it has made Pyongyang behave less belligerently since early 2011 (after failing to do so in 2010).


On Iran and Libya, China has also chosen not to be a spoiler.  On global climate talks, Beijing's evolving negotiating positions have also improved considerably.  However, even China's modest contributions to the world order could be at risk if its leaders, so distracted by domestic crises, decide not to make any contributions at all.


A piece of conventional wisdom about a weaker China is that it will be more belligerent because its leaders will have the incentives to divert domestic attention with appeals to nationalism and a more aggressive foreign policy. This is a simplistic understanding of how Beijing behaves.  To be sure, such temptations do exist, and one can expect China's new leaders, hobbled by inexperience and lack of political capital, to pander to nationalist sentiments.  But Chinese leaders are no fools.  Talking tough is one thing, but acting tough is another.   When we examine Chinese foreign policy behavior in the last sixty years, we will find that Beijing, for all its bombastic rhetoric, actually has picked its fights carefully.  Acutely aware of their own limited military capabilities, Chinese leaders have avoided getting into fights they would be sure to lose.


If we apply this insight to speculating about Chinese external conduct in the coming years, the only thing we are certain about is uncertainty.  The confidence derived from a strong economy and relative domestic stability will be gone, and so will be the self-imposed restraints on jingoistic rhetoric.  Multi-faceted challenges to the new leadership — possible economic stagnation, social unrest, elite disunity, and a revival of pro-democracy forces — will make it more distracted and less politically capable to maintain discipline on numerous actors now involved in China's foreign policy.  The effects of such accumulated internal woes, while not necessarily aggressive, are certain to be an erratic pattern of behavior that both worries and puzzles China's neighbors and the rest of the international community.

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Bear's picture

We are still the world's super power ... however we are led by a less than super power


I cannot believe how stupid we were to announce we were going to have joint exercises with the Japanese by descending on a south China Sea island ... and then how really, really stupid we were to call them off. I find it very hard to believe they know what they are doing in Washington.


3rdgrader's picture

To protect and serve the criminal theives that swim in an ocean of cash that they steal out of the peoples pockets daily with their printing press, or are you too stupid to comprehend that?

Richard Chesler's picture

Damage to the current world order of thieving bankers and corrupt political lackeys is exactly what is needed.

Popo's picture

Anyone who thinks war isn't coming understands neither history nor the link between economics and war.

The reason the war games were canceled was a sudden awareness in Washington regarding just how badly certain forces in China want (or need) a war.

When it comes to casus bellae they'll pretty much take whatever they can get right now.

What should be noted however, is that certain forces within the US are like minded and eager to get the party started.

turbosuperman's picture

"So I mean look, in my view we’re all doomed. But, maybe if you keep your gold in a safe place you’re doomed later than other people who have no gold and only paper money and government bonds."


China can go f*ck itself.  It's like the wannabe Soviet Union.  America's nuclear arsenal will do what it needs to do when our oil imports everyday stop. 

If you want to know who's in charge, go look at trade deficits.  Keep taking our IOUs, though.  We'll pay you back; we promise.

Half_A_Billion_Hollow_Points's picture

hard to tell whether you're being sarcastic or you're really that stupid.  China will sooner or later dump its tbills, causing a massive collapse, move the $ to china investment corp, which will start buying IBM Apple Google and whatever else retains any value--at a cheap price.


The US is over.  And talking about nukes, it's easier to nuke one or ten of our navy fleets, which are LEGITIMATE military targets, than a a city, which is not.  Nuke a fleet, make friends in Russia & Arab world.  Nuke a city, expect armaggedon.

LMAOLORI's picture



I can believe how stupid this administration is..

Appease, Surrender, Abandon, and Get Nothing: Obama's NaivePolitik


"Obama has also turned a blind eye to brave Chinese dissidents. Our economic and political relationships with China are too important to let matters of human rights get in the way. We virtually tossed out a blind dissident seeking refuge in our embassy so as not to embarrass the Chinese communists, who hold a good portion of our national debt. In a rare case of good luck, the blind lawyer was allowed to emigrate, but no telling what is happening to the friends and relatives he left behind."

Glad to see those Diplomat Stories given more press the mainstream media misleads people about the conditions in China not only the economic news but how the people in China have no human rights. I guess we are all supposed to ignore that as long as they buy our debt and we trade with them. You would almost think some in our government along with some of the media are Communists themselfs.

Has China's Economy Bottomed Out?

Be careful what we wish for?  What kind of nonsense is that it would a wonderful thing if the people revolted and got rid of the brutal Communist over lords. 

combatsnoopy's picture

The "dissidents" or the working class will suffer an enormous wealth gap that I wouldn't be surprised if a Neo-Mao came out of the woodwork.  

You're right, our current administration is intolerably stupid. 


LetThemEatRand's picture

And yet you advocate a laissez-faire approach to trade that openly encourages U.S. corporate investment in factories in oligarch/communist China, which directly and unequivocally undermines the American middle class and expands the trade deficit (see WalMart, Apple, and every major manufacturer and technology leader).  

Cortez the Killer's picture

OK then, bud.  You work for $5 an hour.  And tell all your friends they can have jobs too.

Ill gladly buy the ipod made in america for the same price.

now. go fuck yourself red douchebag

LetThemEatRand's picture

Translation -- na na na na boo boo.  Brilliant response, consistent with your childish ideology.

Double.Eagle.Gold's picture

Clearly, ZH does not require evidence of an IQ above 60 before granting rights to post.

What a shame.

redpill's picture

Outsourcing of personnel and manufacturing abroad is a symptom of the problem, not the cause.  It's myopic individuals such as yourself that foolishly go back to the same master and ask for tariffs and regulation when not only will it makes matters worse, but it ignores the fact that it is the system that those masters have created that has caused the problem to begin with.  We are not bound by a communist past like China, we have no excuse for not being the nexus for free enterprise on the planet.  Instead we are losing ground because we have foolishly and lazily succombed to honey-tongued central planners who promise the world.  We stupidly believe them, and then spend our time looking for someone to blame.

LetThemEatRand's picture

So if the cause of the problem is central planning, why do you advocate free trade with a country that defines the term and uses its citizens to enable the transfer of intellectual property and enriching the few at the centrally planned top?   How do you propose eliminating the obvious incentive of Western business to build factories in a slave labor country with no environmental regulations?  

I was at a conference in South Carolina a few years ago, and I did a double take when a local gave me directions that included "take a left at the slave market."   Does that have a nice ring to you? 

Silver Bug's picture

Don't worry QE to infinity is here to stay.

TideFighter's picture

"So, was it a backache or something like a heart attack?" 

"No, he was Simmonized"

"I didn't know China had hot tubs?"

"We don't."

DoChenRollingBearing's picture

China will likely remain an enigma and difficult to read and react to.  Yet, I still believe (and have for a while) that cool heads and smart diplomacy (and getting OUR affiars in order), all "ifs", that there will be no hot war with China.   

Further, I think that we can, at least to a degree "partner" with historically non-aggresive China.  Just be cool and take it easy.

kliguy38's picture

After all.....we have demonstrated to the world that we are eternally searching for peace.....sarcasm off

Ident 7777 economy's picture


-1, this is the STOOPID police and you have been cited ...

Harbanger's picture

China has historically always had an isolationist nature.  That's a big reason why they've chosen an eastern form of communism.  The last big expansion they had was the Han dynasty, many lunisolar centuries ago. I mean their biggest fear has always been "invasion", they've built great walls for a reason, they're not conquerers, that's for the wild eyed meat eaters.

Harbanger's picture

PS- I understand China and the reasons for their choices.  However, I also know, nothing has a more corrosive effect on the human spirit than communism.

Oh regional Indian's picture

How about the currently prevelant 

Kulture of Krony Kapitalism....

Quite Korrosive...


Cortez the Killer's picture

just not worth it fighting over some bird shit crusted sea rocks 5000 miles from California

If the Japanese want them, let them spill their own treasure and blood.

knukles's picture

Here here,
We have plenty of bird shit encrusted rocks right here in the People's Republic of California

Oh regional Indian's picture

knuckles, not sure if you wear tin hats, but as a Kalifornican, this might be of interest. I'm a former Bay Arean meself. Wish I was on to this then...


knukles's picture


Many thnaks.  I absolutely LOVE stuff like that.
I find it ever so "entertaining"
Many thanks.

LongSoupLine's picture

Yep, through all that they're accumulating gold no holds barred.

Sun Tzu at its best.

willwork4food's picture

"To subdue the enemy without fighting is the acme of skill."-SunTzu

They found our weakness: Corporations & Politicians who would sell their mother for a profit.

+10 Long

combatsnoopy's picture

China exploits their labor pool (SNL & others are whining on their behalf when their slave labor gets offshored jobs from Americans)... they're tackling inflation while their wealthy induldge in TACKY hideous looking gold plated cars and Remy cognac that costs 2500 Euros/bottle as they clutter up their krappy tiny spaces with gaudy made in CHina label knock offs.  Folks, this is how Mao created the famine. 

The narcissist nihilistic yet sadistic sycophantic nature of Asia will get them from within.  Tiger parenting ruined that country, and the rest of that continent. 


ACP's picture

You forgot to mention...

"'d send her COD."

Urban Redneck's picture

China has its own version of "gridlock" due to factionalism within a one-party system (as opposed to the D/R branding differences in the USSAs one-party system);

This gridlock (combined with a desire to save face and preserve the facade of success of the one-party system) prevents serious action against the widespread corruption where Chinese corporations big and small and in bed with politicians big and small;

Global debasement isn't just a game among the central bankers.

disabledvet's picture
Apparently the USA isn't the only one with a Bad Company...

q99x2's picture

Why didn't they say that the City of London and US wants access to the South China Sea oil reserve fields and are willing to have a nuclear exchange if China doesn't go along with it. I don't understand the pissing contest. They should put me in charge. This is obviouly the end result of something Hillary did. 

chump666's picture

Gas. Easy to access apparently, and abundant.  That and Japan has their anti-nuclear backlash going, China has energy inflation (thanks to Fed/ECB madness).  Recipe for war. Throw in Philippines, Vietnam and India all in the mix.

Should get nastier by each month.


Schmuck Raker's picture

Bummer, dude...

"When Beijing's propaganda chiefs get their new austerity budgets in a year or two, it is hard to imagine they will decide to throw good money after bad."

Everyone here at ZH hopes you'll stick around anyway, AnAnymouse.

SoNH80's picture

Not to worry.  I'm confident that his bosses recognize his crackerjack work at exposing splittists, anti-Party black elements, tortoise eggs, "American" exponents of Americanism, and the running dogs of same, and have given him a fat Golden Week bonus of Y 75 and a pickled partridge with extra chili pepper.


knukles's picture

a happy peasant is a happy peasant
                       -Mao ze DingDong

SoNH80's picture

China is the least of our worries.  If Saudi "The Friendly Islamic Whack-Job State" Arabia shits the bed, it's curtains for The Tramp.


SoNH80's picture

The Shah looked pretty solid in 1976, why, he was importing shag carpet!  and television! and bellbottoms!-- and jet fighters!-- and then, he shat the bed.

I have always been perplexed as to why one Islamic theocratic police state is "good," and the other Islamic theocratic police state is "bad."  They both seem pretty lousy to me, and the U.S. should keep its distance from both, but I guess I'm not a really sophisticated Elite political type after all.


willwork4food's picture

The Shaw? Why do you bring up him when you were referring to SA? The Shaw was a western controlled puppet whom the people hated so much they finally threw out and nationalized their oil. Which is why they are demonized still today.

After Nixon & Co. fucked the world's CBs, their were long lines at the gas station, inflation, layoffs and we made a deal with SA? With what? Well, that we would turn their hareem into a parking lot if they didnt play nice. What would you think their chances are today by screwing with the US?

3rdgrader's picture

the long lines might not be back, but current record fuel prices will seem like a bargain in six months if obama gets re-elected

prains's picture

cronyism, corruption, mal investment calls home wherever there are people that are only interested in their own personal enrichment, and they'll start wars to do so.

What china needs is a rance rarmstrong to show just how great they are as a people and a nation. go rance, we wove yuuuu!

BeaverFever's picture

Fortunately for the Chewbacca, the Chinese love KFC otherwise her 57" butt would be in danger of shrinkage when they take over the country.

bankonzhongguo's picture

After 20 years of China Whatever, I can tell you unless you pick-up and move there and learn the language there is NOTHING for you on any China trade.

The race is on. 

Can China obtain enough gold to make the yuan the next global reserve currency for the next 100 years for the rest of the developing world - mainly Africa, or does the Fed/BOE/ECB/BIS take down all currencies including the yuan?  How that is going to happen with China actually making everything is beyond me.

The sprint is China remains independent with a semi-gold backed yuan, or its broken into pieces a la - Warring States.

It's not as far fetched as you realize, at least some Chinese see it that way.

Now what could break China apart?

willwork4food's picture

The same thing that broke the Roman and American Empire apart.


Jack Burton's picture

Unfortunately I know very little about China. I do know that they lend the US money, produce many of our consumer goods, are still growing at high rates and are now an industrial super power. How good native technology really is is a question. I rather doubt they pose a current threat as they have much to sort out at home.

On the other hand, the USA is clearly in decline. We don't even need to go into this because ZH readers are well aware of what is going on here. If there are any threats, it is an out of control US Neocon led military industrial complex that now answers to US corporate interests and also to some weird form of American christian fundamentalist superiority complex.

In short, the USA is a wild card and the influence of Israel upon our Middle East actions makes us a very WILD card. We have our fingers in every pie from North Africa to central Asia and all point inbetween. The US now is an open backer of al-Qaeda and the Sunni religious sect across Middle Eastern States. We are hell bent on war on Syria, war on Iran and now, war on Lebanon. All the while talking tough about future war on China, as also the ever present talk of war on Russia. See Romney's latest threats against Russia.

So clearly, who is the world's mad dog nation? Who is militarily involved in half the countries of the world, and bombs at will any nation they feel like? The washington elites fancy themselves rulers of half the earth and all the while seem to be aiming for more.

The neocon wackjobs in Washington and Israel will take the world to war, because they believe they are all powerful. They are wrong! And it will be the average American who pays the price of their empire building. China should be worried, Russia isn't worried because Putin just practiced using his vast nuclear forces to defend the Russian nation. Why in 2012 does Russia need to practice nuclear war? Look to the wackjobs in Washington and you get your answer. It is a sign that Russia takes this threat seriously that they have moved the most modern AA Missile systems they have to the Turkish border. The US invasion of Syria will not come off without a hitch like Iraq did. War mongering from Ms Clinton will not be tolerated like it has been. The line in the sand is beginning to be drawn by both Russia and China. The conquest of Iran may be where that line comes into play. Or perhaps even Syria. The empire is playing with fire!

Ident 7777 economy's picture



Jack Burton:

" ... On the other hand, the USA is clearly in decline. We don't even need to go into this because ZH readers are well aware of what is going on here. If there are any threats, it is an out of control US Neocon led military industrial complex that now answers to US corporate interests and also to some weird form of American christian fundamentalist superiority complex."


Naive, myopic, with an unhealthy tinge of conspiracy-theory thrown in (presumably just for BAD measure)

While there are those on ZH who are 'well aware' of this tripe, I think honestly those numbers are small. A much larger majority ARE aware of the truth, and you have nailed it let alone even buzzed close by it ...